15 September 2004 External T.I. 2004-0086341E5 - Discrimination against off-reserve Indians?

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether CRA's income tax polices concerning the taxation of employment income earned by a status Indian violate the Canadian Charter of Rights and Freedoms

Position: No.

Reasons: In Shilling, the Federal Court of Appeal indicated that it was not prepared to say that Corbiere overrules previous jurisprudence which has found that place of residence may be relevant in a connecting factors analysis

XXXXXXXXXX 		2004-008634
J. Gibbons, CGA
September 15, 2004

Dear XXXXXXXXXX:

Re: Taxation of Off-Reserve status Indians

This is in reply to your letter, which we received July 8, 2004, wherein you questioned the policies of the Canada Revenue Agency ("CRA") concerning the taxation of employment income earned by status Indians residing and working off reserve. You assert that such polices violate the Canadian Charter of Rights and Freedoms (the "Charter"), and that, as a status Indian, you are exempt from all taxes, including personal income taxes.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and the subject matter of a request for an advanced income tax ruling submitted in the manner set out in Information Circular 70-6R5. However, we have provided some general comments below, which we hope will be of assistance to you.

The authority for the tax exemption enjoyed by some status Indians on their income is derived from paragraph 81(1)(a) of the Income Tax Act and paragraph 87(1)(b) of the Indian Act. In particular, the latter provision provides that the exemption applies to the personal property of an Indian or a band situated on a reserve, which the courts have determined can include income.

The basis for determining whether income is exempt under section 87 of the Indian Act was reviewed by the Supreme Court of Canada in Williams v. the Queen (92 DTC 6320). They concluded that the determination of whether income is exempt from tax under the Indian Act requires the evaluation of the various connecting factors which link the income to one location or another. Based on the guidance provided by the Supreme Court in this case, and after receiving representations from various interested Indian groups and individuals, the CRA developed the Indian Act Exemption for Employment Income Guidelines, in order to assist status Indians in determining the tax status of their employment income.

As support for your view that factoring in the location of an Indian's residence and/or employment in determining the income tax status of an Indian's income is a violation of the Charter, you referred to the Supreme Court's decision in Corbiere v. Canada, [1999] 2 S.C.R. 203. In this regard, we refer you to the subsequent tax case, The Queen v. Shilling (2001 DTC 5420), in which the Federal Court of Appeal commented that it was not obvious that the Corbiere decision would apply in a connecting factors analysis under section 87 of the Indian Act. Furthermore, in Shilling, the Federal Court of Appeal indicated that it was not prepared to say that Corbiere overrules previous jurisprudence which has found that place of residence may be relevant in a connecting factors analysis.

In conclusion, it our view that the Corbiere decision does not have any impact on the current rules for connecting income to a reserve for purposes of determining the income tax status of employment income earned by a status Indian.

We trust that these comments will be of assistance.

Yours truly,

Roxane Brazeau-LeBlond, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate

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